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2 Apr 2015
SNB might start intervening in FX space, might lower rates further - Rabobank
FXStreet (Barcelona) - With ECB’s purchases weighing down EUR/CHF, Emile Cardon of Rabobank, predicts that the SNB might surprise with another rate cut and fresh buying of the CHF.
Key Quotes
“We expect the Swiss National Bank to start intervening in the FX market in case pressure on EUR/CHF increases. This could be next week already, given that ECB is purchasing EUR 60bn in bonds each month and EUR/CHF is creeping lower again.”
“The SNB could probably buy another CHF 50bn; which will probably mainly be focused on bonds with a short duration (it will try to prevent huge losses from price fluctuations). These additional purchases might not be enough and we do not exclude any further rate cuts and the SNB could possibly lower its rate on sight deposits even to -1.5%.”
“Market participants do also not exclude this step as forward rates on three month Libor are trading below the current 3-month Libor rate.”
“The question really is whether Switzerland still has the means to fight any appreciation of the franc under all circumstances. In scenario of panic, it would not be entirely inconceivable for the SNB to introduce certain capital restrictions to prevent CHF to appreciate further. However, such a step would be unprecedented for any country and certainly for Switzerland.”
“For now it would definitely be a bridge too far. In the longer run we expect weaker fundamentals to be harmful for Switzerland as a safe haven status.”
Key Quotes
“We expect the Swiss National Bank to start intervening in the FX market in case pressure on EUR/CHF increases. This could be next week already, given that ECB is purchasing EUR 60bn in bonds each month and EUR/CHF is creeping lower again.”
“The SNB could probably buy another CHF 50bn; which will probably mainly be focused on bonds with a short duration (it will try to prevent huge losses from price fluctuations). These additional purchases might not be enough and we do not exclude any further rate cuts and the SNB could possibly lower its rate on sight deposits even to -1.5%.”
“Market participants do also not exclude this step as forward rates on three month Libor are trading below the current 3-month Libor rate.”
“The question really is whether Switzerland still has the means to fight any appreciation of the franc under all circumstances. In scenario of panic, it would not be entirely inconceivable for the SNB to introduce certain capital restrictions to prevent CHF to appreciate further. However, such a step would be unprecedented for any country and certainly for Switzerland.”
“For now it would definitely be a bridge too far. In the longer run we expect weaker fundamentals to be harmful for Switzerland as a safe haven status.”